Nick Roudev, Counsel – TMT, Dubai, Linklaters, explores the latest developments in the region’s data centre landscape and some expected future trends.
The Middle East is emerging as a major data centre hub of global significance, spurred by substantial regional economic growth, local deployment of cutting-edge technological advancements and strategic governmental initiatives supercharging this industrial sector.
Latest developments in this burgeoning space
Recent years have seen a notable expansion in data centre infrastructure in the Middle East. Prominent global technology firms have either established or announced plans to establish data centres within the region. This expansion of the data centre infrastructure has been largely prompted by escalating demand for cloud computing services locally and is driven by swift Digital Transformation across various sectors, including finance, healthcare and education. Data centre capacity in the UAE and Saudi Arabia, for example, has nearly doubled in the past four years and is expected to quadruple in the coming four-year period.
Unlike other regions, governments across the Middle East have been leading the growth in the data centre industry through sovereign strategic investments and targeted financing. For instance, the UAE’s Vision 2021 and Saudi Arabia’s Vision 2030 underscore the importance of digital infrastructure in achieving economic diversification. These strategic plans have resulted in significant investments in data centres, with governments partnering with private sector players to construct cutting-edge facilities.
Sustainability has become another central theme in the growing data centre industry in the region. Given the hot climate, cooling systems pose a particular challenge in the Middle East. To mitigate this, new data centres are increasingly adopting innovative cooling technologies, such as liquid cooling and advanced air-cooling techniques, to reduce energy consumption. Additionally, some facilities are exploring renewable energy sources, such as solar power, to minimise their carbon footprint.
Edge Computing is gaining prominence in the Middle East, driven by the need for low-latency services and real-time data processing. This trend is particularly evident in industries such as telecommunications, where the deployment of 5G networks is accelerating the demand for Edge data centres. Companies are investing in smaller, decentralised data centres located closer to end-users to ensure faster data processing and enhanced user experiences.
The demand for cloud services in the Middle East is projected to continue its upward trajectory, as global hyperscalers expand their footprint in the region and the GCC governments step up their competition in funding innovation and capacity building in the industry. Enterprises are increasingly migrating their workloads to the cloud to enhance scalability, reduce costs and improve operational efficiency. Cloud service providers are expected to expand their presence in the region, leading to the establishment of more data centres and the expansion of existing ones.
AI is anticipated to play a crucial role in the future of data centres in the Middle East by optimising data centre operations, improving energy efficiency and enhancing predictive maintenance. AI algorithms can analyse vast amounts of data to predict equipment failures before they occur, allowing for proactive maintenance and reducing downtime.
The recent focus of sovereign investment in the UAE and KSA on the homegrown development and localisation of foreign cutting-edge AI technologies is synergistically aligned with the growing attention given by the GGC governments to the development of the local data centre industry.
Trends
A recent trend that comes because of the prominent role played by governments in the data centre industry in the region, is that data sovereignty is an increasingly important factor in regulatory policymaking in the Middle East. There is a growing emphasis on ensuring that data generated within a country is stored and processed locally, and this trend – driven at least in part also by economic protectionism considerations – is likely to drive the demand for local data centres and encourage the global hyperscaler players to establish regional facilities to comply with data sovereignty regulations.
The proliferation of Internet of Things (IoT) devices and the growth of related industries in the region is expected to be another major driver in the construction of more data centre capacity in the Middle East. Along with their ambitious plans to turn their countries into AI powerhouses of global significance, the governments of the GCC countries are also stimulating the local IoT industry, and IoT devices generate colossal amounts of data that require storage, processing and analysis. Data centres equipped to handle IoT workloads will therefore be crucial in supporting smart city initiatives, industrial automation and other IoT-driven applications.
Another trend that we expect to continue in the future is the collaboration and partnerships between governments, technology companies and industry stakeholders in driving the growth of the local data centre industry and the localisation of foreign data centre technology in the Middle East. These partnerships can facilitate knowledge sharing, innovation and the pooling of resources to develop cutting-edge infrastructure and provide a particularly suitable business model given the region’s concentration of sovereign wealth into centralised funds and state-owned companies. Public-private partnerships (PPPs) will therefore continue to play a crucial role in funding and developing large-scale data centre projects.
The regulatory frameworks in the Middle East are also evolving to support the growth of data centres. Governments are introducing policies and regulations that promote investment, ensure data security and protect consumer rights. These regulatory advancements provide a stable and conducive environment for data centre operations, attracting both local and international players to invest in the region. The UAE became the first country in the region to enact mandatory AI regulation in one of its free zones, and along with its bigger neighbour, Saudi Arabia, has been reassessing and revamping various aspects of its telecom and technology regulations to provide a permissive legal environment for the booming data centre industry.
Overall, the region’s strategic approach, coupled with governmental support and technological advancements, positions the Middle East as a significant and evolving epicentre for the global data centre industry, poised to meet the digital demands of the future.
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